Point of View: A Way Forward for Global Trade
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Bibliographic details
- Authors: MICHAEL FROMAN
- Published: June 1, 2023
Overview and context
- Author: MICHAEL FROMAN; published in June 2023 in F&D Magazine.
- Author background stated: incoming president of the Council on Foreign Relations; former US trade representative and vice chairman and president, Strategic Growth, at Mastercard.
- Key framing:
- Global trade has experienced a sharp backlash amid concerns that trade liberalization and offshoring hollowed out industry in developed nations.
- Responses include more nationalistic policies, yet global trade continues to grow with onshoring, nearshoring, and friend-shoring occurring.
- The global trading system is at an inflection point, with convergence of climate and trade policies and questions about the limits of multilateralism and the need for a new political consensus.
Convergence of climate and trade
- Recent unilateral climate-related trade actions highlighted:
- Inflation Reduction Act (IRA) in the US:
- "The IRA became law last August"
- Includes "$400 billion in climate-related spending over a decade."
- Incentivizes electric vehicle purchases with a "$7,500 consumer tax credit."
- Subsidizes US-based manufacturers to produce clean tech and green energy.
- Carbon Border Adjustment Mechanism (CBAM) in the European Union (EU):
- "CBAM, which goes into effect in October,"
- Will impose a fee on imported products from manufacturers in countries that do not have comparable carbon pricing mechanisms.
- Tensions and concerns:
- The IRA has faced criticism from US non-free-trade-agreement partners as potentially discriminatory and leading to outflow of clean-energy-related investments.
- The EU has proposed an additional package of clean energy subsidies in response.
- The CBAM raises concerns about complexity in measuring emissions and comparing carbon pricing mechanisms, and potential exploitation for protectionist purposes, including against developing economies.
- Central point: Climate and trade policies are converging and sometimes conflicting; whether major economies collaborate or act unilaterally remains undetermined.
Trend toward open plurilateralism
- Assessment of the WTO and multilateralism:
- Since its founding in 1995, the WTO "has been slow or unable to fully reach multilateral agreements," with two notable exceptions: the Trade Facilitation and the Fisheries Subsidies agreements.
- There is "no political consensus around what major economies want from the global trading system and what role the WTO should play."
- Institutional reform of the WTO is difficult without an underlying political consensus.
- Questions requiring substantive leader-level conversation:
- Degree of focus on economic efficiency vs. national industrial agendas vs. economic development.
- Role in addressing labor and environmental issues.
- Role in leveling the playing field, disciplining state-owned enterprises, and weighing subsidies.
- Whether the goal should be creating a rules-based system with mechanisms for enforcing those rules.
- Political realities to acknowledge: Populism, nationalism, nativism, and protectionism are real and cannot be ignored in designing trade policy.
- Recommendation and observed practice:
- In absence of multilateral consensus, "open plurilateralism"—agreements among willing countries that go above the lowest common denominator—may be the most promising way to advance important trade issues.
- Examples cited as models: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the United States-Mexico-Canada Agreement.
- Emphasis on public–private collaboration on issues like the digital economy (digital services, data, privacy, cybersecurity), while warning of risks from unilateral actions increasing trade friction.
Importance of getting it right
- Core warning: The challenges facing the global trading system have grown more complex, and success in addressing them is more important than ever.
- Final admonition: "There is too much at stake to be complacent."
Point of View: A Way Forward for Global Trade — MICHAEL FROMAN; June 2023.
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- A Way Forward for Global Trade